Market review

• Asian market rose, led by rallies in the SHCOMP (+1.9%) and HSI (+1.3%) as commodity producers jumped amid rising oil prices coupled with diminishing prospects for higher U.S. borrowing costs this year. This was reinforced by rising speculation that central banks will take steps to ease the economic fallout from the U.K’s Brexit. The MSCI Asia Pacific Index added 0.8% to 130.7, a tad higher than 130.1 before the Brexit vote.

• Tracking the stronger regional markets and higher oil prices, KLCI jumped 8.6 pts to 1654.8 (above last week’s high of 1654.3) in a thin trading market amid long Raya holidays ahead, led by interests in index-linked blue chips such as MAXIS (+15 sen to RM6.10), AXIATA (+9 sen to RM5.60), CIMB (+9sen to RM4.40), BAT (+150 sen to RM54.00) and MAYBANK (+3sen to RM8.23). Trading volume was subdued, decreasing 11% to 1.07bn shares worth RM1.22bn while market breadth was negative with 338 gainers as compared to 363 losers.

• Wall St was closed yesterday due to the Independence Day holiday.

Technical Insights

• Profit taking and subdued interests to cap gains

• Although technical indicators are flashing positive signals agai n after breaki ng last week’s high of 1654.4 yesterday, we do not discount the possibilities of investors sitting on the sidelines during this holiday shortened week. Investors are also expected to focus the June FOMC meeting minutes on June ADP and non-farm payrolls figures on 8 & 9 July (Malaysia time). Key resistances are 1665 (200-d SMA) and 1671 (50% FR) while supports are 1640 (23.6% FR) and 1636 (30-d SMA).

Market Strategy

• After staging strong comeback in the last few sessions, most major markets have returned to the pre-Brexit levels amid hopes for stimulus from global policymakers to limit Brexit fallout. However, we still expect global markets to remain volatile for a while as profit taking may emerge after recent sharp relief rallies (without material changes in fundamentals).

• In a holiday-shortened week (hal f-day trading today and Raya holidays on 6 & 7 Jul), KLCI is likely to consolidate its recent gains amid lackluster trading activities.

• Tomypak’s new ri ghts and free det achable warrants are listed today. Although Tomypak’s (TP RM2.36) share prices could face selling pressures in the near term due to the new issues, we maintain BUY on weakness amid its resilient prospects in the F&B business. Meanwhile, TOMYPAK-WA is likely to be fairly valued at RM0.40-0.50 levels, ascribing 0.22-0.27x of warrant/underlying price assumptions.

Source: Hong Leong Investment Bank Research - 5 Jul 2016